Editor's note: This brief was summarised by The Property AI Team from a report by PropertyWire. Read the original article for full details.
Ombudsman Orders £4,100 Refund Over Unmortgageable Property Sale
The Property Ombudsman has ordered a property business to refund a £4,000 buyer's premium and pay a further £100 in compensation after it failed to verify material information about an investment property's mortgageability.
The case, reported by PropertyWire, centred on a buyer referred to as 'Andrew' to maintain anonymity, who paid the premium to secure an investment property through a specialist property marketplace. The business model required buyers to pay the premium upfront to reserve properties and prevent competing offers, and the business promoted pre-checks and verification processes on its website to assist buyers with due diligence.
After Andrew reserved the property and progressed mortgage arrangements, a lender in late January 2025 determined the property was unsuitable for lending purposes. The lender's concern related to the property's only bathroom being located within an attic conversion that it did not regard as habitable accommodation. Andrew withdrew from the purchase on 4 February 2025 and requested a refund of the buyer's premium.
Agent Rejected Refund Request
The property business rejected the refund request, stating it fell outside the contractual refund period. It argued that it had relied on information provided by the seller and could not reasonably have been expected to identify a historic building regulations issue.
The Ombudsman's investigation concluded that whilst the mortgage lender's decision was not proof of a building regulations breach, the issue was clearly material as it directly affected the property's mortgageability. The ruling noted that the location of the property's only bathroom within the attic conversion should have prompted further enquiries.
The investigation found the agent had not demonstrated it had established whether the conversion had the necessary approvals, nor had it made clear to prospective buyers that this information had not been verified. The ruling stated that had Andrew been informed the status of the attic conversion was unknown, he may reasonably have chosen not to proceed or to undertake further enquiries before paying the premium.
Implications For Property Professionals
The Ombudsman determined the agent could not fairly rely on contractual refund deadlines when the underlying problem arose from its own failure to verify or qualify material information before the agreement was entered into.
The complaint was upheld and the agent was directed to refund the £4,000 buyer's premium in full. A further award of £100 was made to recognise the avoidable aggravation and inconvenience caused, bringing the total award to £4,100.
The ruling highlights the importance for agents to identify material information that could affect a buyer's decision, particularly features that may affect mortgageability, insurability, use or value. The case also underscores the need for businesses to complete key checks before taking non-refundable or time-limited payments, particularly given recent challenges in the buy-to-let sector.
As estate agencies face increasing scrutiny over their practices, this ruling serves as a reminder that taking substantial premiums early in the transaction increases the importance of providing buyers with reliable information and a meaningful opportunity to carry out due diligence.
Source: PropertyWire